Brian Stutland One stock that saw a surge of interest and high trading volume during Friday’s abbreviated trading session was RIM. Shares closed up over 13% on the day following an analyst upgrade and upward price target revision to $15. On trader bought 11,055 March 18 calls for $0.47 with the stock at 11.57. This is a bullish bet that the stock will climb at least 33% over the next 109 days.
Why so bullish? It all comes down to expectations for BB10, RIM’s newest operating system. Earlier last week Jefferies upgraded the stock after a survey showed “a much more positive view of BB10 then we expected.” National Bank Financial upgraded the stock Friday because they expect BB10 to launch in multiple countries on January 30th, with shipping starting soon after. They said most analysts earnings estimates reflect a March launch date.
While some stock and option traders may be jumping into the stock here ahead of the launch, I am still hesitant. First, this could be a buy the rumor, sell the news scenario. RIMM is already up 87% off its 52 week low made on 9/26 meaning the company will need fantastic earnings in order to stay ahead of expectations. The company’s last earnings report showed significant declines in years over year EPS and revenues so buying into the stock now is a complete bet on BB10 turning the company around. It is important to note that BB10 will be releasing after the important holiday shopping season, which will further disadvantage it to competitors Google and Apple. If you do think BB10 will be a success, then buying the March 18 calls like this trader did is the way to go. Risk is limited in this trader to the $0.47 premium paid, but the returns in the event RIMM shows earnings growth could be huge.
